Social security means testing?

[EastWest Gal]

Or draw down your IRA+401K even if you do not spend it all, and hide it under the mattress. No more investment. Stock market will crash, and the economy will suffer, but who cares?

If only the poor get SS, then everybody will find a way to be poor, maybe even involuntarily.

I think some form of reduction will be enacted, but not outright cut-off.

I doubt it. My late aunt's SS was about $760/mo. Try living on that. Fortunately she had two generous siblings.

More likely the ceiling will be removed or at least increased.


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[manerac]

Actually for many retirees, SS is a key piece of the puzzle. It may seem like a waste of money for someone that is not yet close to retiring. For those that are close, it is maybe a bad investment but not a waste of money.

It certainly would be a shame to turn SS into a welfare program though.

SS is a welfare program. It's a shame that the general public considers it a retirement plan.

Is Social Security Welfare? - The Future of Freedom Foundation

 

[Options]

...My late aunt's SS was about $760/mo. Try living on that. Fortunately she had two generous siblings.

...

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Good point. The reason for reluctance to impact those of eligibility age (over 62) is because to claw back benefits would be seen as cruel. There is a huge misconception that people nearing retirement (i.e., boomers) are wealthy. A disproportionate number may be represented here, but the reality is 1/3 of those nearing retirement have nothing, 1/3 will be the "worried well", with the last third represented by most on this board. Fact is, those approaching or in retirement, collecting or not, working or not, have few options, and almost no time to recover financially. Reducing benefits for most would be catastrophic and politically disastrous.

See this:

https://www.washingtonpost.com/opinions/five-myths-about-baby-boomers/2015/11/06/44ca943c-83fb-11e5-8ba6-cec48b74b2a7_story.html

Specifically:

A Wells Fargo study released last month shows that working Americans age 60 or older have median savings of just $50,000, about $250,000 short of their goal. And plans to keep their jobs longer might not work. In the same study, 49 percent of retired respondents said they left the workforce earlier than expected, frequently because of health problems or an employer’s decision.

 

[Car-Guy]

SS is a welfare program. It's a shame that the general public considers it a retirement plan.

Is Social Security Welfare? - The Future of Freedom Foundation

 

[eta2020]

I don't plan on getting any SS. I just hope they stop collecting it from me.

Well you are 43 and Fired...so indeed SS will not be a big check for you.

But if you are high earner and work till 55 you will collect almost MAX benefit at 67.

I think you will collect around 2500 bucks a month. Multiply that by 2 spouses and one is looking at 60k COLA per year. Wait till 70 and you are looking at over 70k.

That is big money just to give it away. After 70 when we likely slow down one can comfortably live on 70k plus.

 

[NW-Bound]

Or draw down your IRA+401K even if you do not spend it all, and hide it under the mattress. No more investment. Stock market will crash, and the economy will suffer, but who cares?

If only the poor get SS, then everybody will find a way to be poor, maybe even involuntarily.

I think some form of reduction will be enacted, but not outright cut-off.

I doubt it. My late aunt's SS was about $760/mo. Try living on that. Fortunately she had two generous siblings.

More likely the ceiling will be removed or at least increased.

I agree that SS will not nor should be cut for the lower recipients. I should have put "poor" in quote. Let me explain further.

The highest SS one can get is about $32K for FRA in 2015. So, a couple who were good wage earners can get more than $50K/yr easily. Now, suppose one such couple saved money in 401k and now can get $100K total, while another couple did not and now lived on only the $50K SS.

They can make an argument that the saving couple is "rich" and the grasshopper couple is "poor" and reduce SS to the former. Now, if you were them, would you not want to make yourself look "poor"?

If SS is to be reduced, it should not be based on additional retirement incomes or savings. Doing that simply encourage people to not save, or to hide their stash. It is currently based on lifelong income records. Two persons making the same and contributing the same to the system should get the same. You do not punish the ant and reward the grasshopper.

 

[marko]

3 million dollars is not that big money compared to SS for high earning couple taking SS at 70.

I have more than that and I would not hesitate for one second to spend it all if they started to means test what we rightfully deserve.

I don't think means testing will save much money unless not giving SS to few very rich people looks like big saving. It will completely discourage everybody from saving in 401ks and IRAs.

The means testing you mention is not about making a dent in the situation; it is about feeling good about making those who saved, did without and LYBM end up like everyone else who didn't. In fairness, of course, y'know.

 

[Another Reader]

The way in which the elimination of file and suspend was rushed through with no public discussion, the complicity of AARP and others, and the intent to use the savings to pay for the Social Security Disability program, which is nearly bankrupt, says to me that Washington has no intention of honoring any commitment to older folks. Robbing Medicare to pay for the ACA should have been fair warning.

Now that I'm about to collect the check, I think current recipients will be getting other haircuts, such as the change in the basis of the COLA that has been suggested. Means testing is an option, but may apply to later recipients or start gradually. I count Social Security at the current level, but it's not critical to my avoiding the cat food diet.

There were a number of reasons to take it early in my case, and pick-pocketing thieves in Washington was one of them.

 

[eta2020]

The means testing you mention is not about making a dent in the situation; it is about feeling good about making those who saved, did without and LYBM end up like everyone else who didn't. In fairness, of course, y'know.

I would need in excess of 10 million before I would not mind blowing away SS.

How many couples have 10 million plus in assets?

LBYMs will never end up like non savers. Those are dreams of non savers
Those families with 10 million are beyond what I would call standard LBYM type.

 

[marko]

There were a number of reasons to take it early in my case, and pick-pocketing thieves in Washington was one of them.

+1 It was my #1 reason. Get in and hope for grandfathering.

 

[marko]

LBYMs will never end up like non savers. Those are dreams of non savers :

Of course, but it's not about it being effective. It's about them thinking that they're getting even.

 

[NW-Bound]

LBYMs will never end up like non savers. Those are dreams of non savers

But they can surely have policies that will narrow the gap.

 

[CRLLS]

Just the opposite. The manner in which these latest changes (closing a "loophole") were implemented (not affecting those over 62) reinforces the idea that this past practice will continue . See this:

https://www.bogleheads.org/forum/vie...ewpost=2684095

Specifically:

Quote:
Currently, if you are younger than full retirement age, and you file for either a retirement benefit or a spousal benefit, the SSA checks to see whether you are eligible for the other type of benefit also (i.e., retirement or spousal). If you are, you are automatically “deemed” to have filed for that other benefit as well. You have no choice in the matter.

This deemed filing rule is the reason that, when people want to file a restricted application (i.e, an application to collect just spousal benefits while they allow their retirement benefit to continue growing), they must wait until full retirement age in order to do so.

For anybody who will be 62 or older as of 1/1/2016, there will be no changes to this deemed filing rule or to the restricted application strategy.

Frankly, my brain hurts! That being said, I believe that I will no longer be able to:


a)Wife not file when she becomes 66 in Feb, 2017 and
b)Wife allow her benefits to increase while not filing and
c) Me, File and suspend when I reach FRA in Nov 2017
d) wife then files restricted application for spousal benefits while her earned benefits grow
e) both her and my benefits grow until we decide the time is right.


This was one possible plan to draw down 401K and taxable IRA's a bit to limit RMD's. As I see the new rules, if I file and suspend at 66, then my wife will no longer be able to collect spousal while mine is suspended. I am too young to see FRA before May 2016. So that is a loss of future ~$15K/yr of "spousal benefit" It is now lost even though we are both currently eligible for some SS benefits. That and there will no longer be the ability to retroactively un-suspend. These are not included in the new laws for those who actually file within 180 days of the signing of the law. I see that as impacting us.


At least that is how I am reading the actual laws as signed into law,

 

[Midpack]

But isn't that exactly what they are doing with the elimination of F&S and deemed filing?

This approach seems to be the "modern way". That is, rather than a bold stroke, it's tinkering around the edges. Those tinkering do add up though.

Evidently Tinkering with a capital T. Though file & suspend is very popular here, if this AARP webpage is correct, f & s was trivial.

A very small number of people — perhaps less than one-tenth of 1 percent of all Social Security recipients nationwide — took advantage of so-called file-and-suspend claiming strategies to increase their take.

That's so small it won't even register on the mainstream electorates radar, so not an indication of what may come.

I would have guessed file & suspend was far more common...

Budget Act Safeguards Social Security, Medicare for Older Americans – AARP

 

[eta2020]

But they can surely have policies that will narrow the gap.

They already have and High income non LBYMs pay for it.

Because if you earn max taxable SS income from 25 to 55 or from 25 to 67 you will get about same SS benefit.

So non LBYMs work extra 12 years and pay into SS, but he/she will not get anything extra in terms of benefits.

55 is nice age to say so long to work IMO to squeeze most out of SS benefit and pump least into it. (For high earners)

 

[CRLLS]

I am very disappointed with AARP on their position. If F&S is such a trivial part, how can it have much of an effect, if any, on safeguarding SS into the coming years? It is contradictory to anyone who uses their heads.

 

[Walt34]

I keep hearing social security is running out of money, I'm 53 & retired, the bride is 47 , she is a homemaker, I imagine like most folks in here as an early retiree , if means testing happens , everyone of us would get a reduced social security benefit (if any).

At this point I'm not very concerned about it. I'm 65 now and will take SS at FRA (66) next spring. Despite the fast action on F&S, that affects a minuscule number of SS recipients so the political fallout is equally small. I think that's what made it feasible for Congress to do it.

Like most others I think any changes that affect large numbers of people will be spread out over long time periods (such as raising FRA from 65 was) so people can plan on it. Or at least the ones who do any planning.

And while I think it is highly unlikely I also think the worst that will happen for us is a 25% cut. That would be noticed, but it would hardly put us on a cat food budget or anything close to it. I seriously doubt Congress would have the stomach for taking on the protests that would follow. Far too many people are relying on SS for their only retirement income and are living on a cat food budget.

 

[NW-Bound]

... Far too many people are relying on SS for their only retirement income and are living on a cat food budget.

Hence, the people who get SS reduced will be the ones not living on a cat food budget. That means people with pensions, 401k, IRA, or even after-tax savings if they figure out a way to count that.

 

[Options]

Frankly, my brain hurts! That being said, I believe that I will no longer be able to:


a)Wife not file when she becomes 66 in Feb, 2017 and
b)Wife allow her benefits to increase while not filing and
c) Me, File and suspend when I reach FRA in Nov 2017
d) wife then files restricted application for spousal benefits while her earned benefits grow
e) both her and my benefits grow until we decide the time is right.


This was one possible plan to draw down 401K and taxable IRA's a bit to limit RMD's. As I see the new rules, if I file and suspend at 66, then my wife will no longer be able to collect spousal while mine is suspended. I am too young to see FRA before May 2016. So that is a loss of future ~$15K/yr of "spousal benefit" It is now lost even though we are both currently eligible for some SS benefits. That and there will no longer be the ability to retroactively un-suspend. These are not included in the new laws for those who actually file within 180 days of the signing of the law. I see that as impacting us.


At least that is how I am reading the actual laws as signed into law,

Yes, this is brain-hurting stuff (isn't all of it at times? personally, I've been having an internal LMP debate all week involving buying a small deferred annuity that kicks in at 70 and an additional QLAC beginning at 80. The annuities seem to have won out due to the small PF commitment but I'm worse for the wear ).

See this:

Millions of Americans just lost a key Social Security strategy - MarketWatch

Specifically:

The first big change is to the “deemed filing” rule, said Mike Piper, author of Social Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages or Less.

“But this change only affects people who will not yet have attained age 62 by the end of 2015,” he said. Specifically, he said, the new law would make it so that deemed filing applies beyond full retirement age rather than only applying before full retirement age.

This, in effect, kills off the “restricted application” strategy in which a person files for spousal-benefits-only at full retirement age while allowing their own retirement benefit to continue growing.

“But for people who will be 62 or older at the end of 2015, the restricted-application strategy is still available,” Piper said.

Emphasis added

As to the mechanics of this strategy, I'm not planning on doing F&S (not married), but if I were I would definitely consult SS. Have you thought of posting on the BH forum on the thread I included above? I'm sure they could and would help.

 

[Texas Proud]

I continue to think long lead times will be the norm for any Congressional action on SS as I suspect the F&S change was an anomaly for Congress. It was seen by them as closing a unintended loophole and not a change to SS per se.

+1 on this... if they see where there is a problem in a law/rule etc., then they will fix it pretty fast... that is not changing the rules of SS IMO...

Also, isn't F&S a recent change to begin with? I have never paid attention to it, so I do not know....

 

[Texas Proud]

I am very disappointed with AARP on their position. If F&S is such a trivial part, how can it have much of an effect, if any, on safeguarding SS into the coming years? It is contradictory to anyone who uses their heads.

Trivial things can become big things if nothing is done to stop it....

Back before it was changed, someone who had a state pension and had never paid into SS could qualify IF they retired while working a job that paid into SS.... this was available to all states.... but it became a cottage industry here in Texas.... many teachers would get a job at a school district that did pay into SS.... for ONE DAY... that qualified them to get spousal benefits... when my sis did it she had to pay the school district for the one day of work... it took them many years to get this fixed as it was a small item.... but it was growing bigger each year...


Same thing with the offsets they now have...

 

[Chuckanut]

What I ment was if the monthly benefit that was projected will be reduced, taken away , if you have above a certain amount of income or for that matter asessts.

Yes, I realize that. I simply point out that the tax system can do the same thing without appearing to be a 'means test'.

 

[Chuckanut]

FWIW, I have known a few people who worked in government jobs where the leaders opted out of the SS system in favor of a more generous government pension system. My entirely observational conclusion is that most wish they had been in SS, especially when they read about Detroit, Illinois, etc.

 

[Ed_The_Gypsy]

I included WEP in my calculations, but went with the current rules and I have no idea what will happen in the future.

If I were to guess, means testing won't happen. When you look at what other countries have done to improve the finances of their systems the solution is usually increasing the retirement age and a progressive reduction in the rates used to calculate the benefit so that the poor don't see a reduction in their payments. The UK has taken an extreme approach by slowly increasing the retirement age of both women and men to age 67 and proposing age 68 after 2030 as life spans increase.The UK has also eliminated all earnings related components from social security. Everyone, no matter how much they earn, will get the same payment if they retire on or after 6th April 2016. This is larger than the basic UK state pension I would have qualified for as an expatriate, so I'm happy.

Brits I have worked with told me that the UK does not apply a COLA to the state pension program for those who reside in retirement outside the UK.

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[Mulligan]

FWIW, I have known a few people who worked in government jobs where the leaders opted out of the SS system in favor of a more generous government pension system. My entirely observational conclusion is that most wish they had been in SS, especially when they read about Detroit, Illinois, etc.

Our system was a one time vote taken in the 1940s before most pensioners alive even had a say in it. I do not know the reasoning either way other than the pension system said it was overwhelmingly voted down by the members. For me I imagine it would have been a near zero difference. I imagine the pension would have been smaller as the contribution rates would have been smaller to allow for SS deductions.


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